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Jim Rickards

The currency wars started in 2010 and they’re alive and well today. We’re not always in a currency war, but when we are they can go on for a long time. We could still be talking about it a year from now.

The main front now is a weak euro and a strong US dollar.

The question is really how much stronger the dollar can get. US growth fell off a cliff in the first quarter of 2015 and they’re borderline recession right now.

If the Fed actually does raise interest rates (which Jim doesn’t expect), and the dollar does get stronger, then the US will probably go into a recession.

At that point emerging markets could be a catastrophe, not unlike 1997.

By September the Fed is going to blink and not raise rates, and when that happens we might even start talking about QE 4 in 2016. And when that happens you could see the US dollar go down and the euro go up, and the people currently shorting the euro will be running for cover.

Look at their one year forward economic forecast for the last six years. They were both wrong by orders of magnitude — way wrong consistently.

They use the wrong models.

They use equilibrium models and the world is not an equilibrium system. If you use the wrong models you’re going to get the wrong results.

The IMF lowered their forecast for the US economy but probably not enough. They raised India and left China unchanged, but China is slowing down significantly. It’s almost like the IMF was struggling to keep the overall forecast number unchanged while the individual countries were moved up and down. The overall forecast should be weaker than that.

INTEREST RATES

Jim doesn’t see how the Fed can raise interest rates this year. If they do then it’s only because they have the wrong forecast again.

Why would you raise rates when you’re borderline recession? You wouldn’t.

But if your forecast says you have pretty good growth you might raise them based on that forecast. Their forecast is always wrong so raising them would be a blunder.

If they did raise them then the US stock market would have no bottom and emerging markets would be even worse.

It would bring a stronger dollar, a weakening euro, and emerging markets would be in distress — it would be a complete blunder.

DEPRESSION

We’re in a structural depression and we’re not in a cyclical recovery.

Depressions can’t be cured by monetary policy, they can only be cured by structural changes — things like investment, regulation and fiscal policies.

Structural changes can’t be made by central banks.

They can only be made by legislators and executives, but the White House and the Congress don’t talk to each other, so the US won’t get those structural changes.

RUSSIA

Russia is in distress right now but they’re not going to fall into the Arctic Ocean.

They’re the eighth largest economy in the world and they’ve got some fundamental strengths. They’re the second largest energy exporter.

It’s apparent the US sanctions aren’t working. The US put sanctions on Iran and they worked. They put sanctions on Russia, and Russia has a much greater capacity to push back so there’s a limit to what the US can do.

The Germans don’t want to be involved in sanctions.

Russia hit a bottom but Jim recommends some of the Russian ETFs for US investors as they’ve done very well — the ruble is coming back.

THE FED

The Fed is going down a path where they say they’re going to raise rates. But why would you raise rates when the economy is weak? You wouldn’t.

You’d only raise them if the economy is strong.

The idea is that the US economy is strong enough to bear the weight of the world; the whole cost of global adjustment. Japan gets a lifeline with a cheap yen. Europe gets a cheap euro.

But the US economy is actually weak.

This is the conundrum the Fed has. They say they want 2% inflation and at the same time they also say they want to raise rates.

But if you raise rates then it makes the dollar stronger which creates deflation not inflation.

So how does raising rates work?

It doesn’t.

This is coming to a head. They’re not going to raise rates in June. Then in September they’ll blink and make it very clear that they’re going to be very “patient” about raising rates.

Did my first gold panning in the woods in the interior of British Columbia, Canada. Followed this path to a waterfall and found sparkling mica, which fools the beginner and floats in the pan. Also found pyrite, another fools gold. But at the bottom of the pan was gold. Fine and small dust and a few little bitty pieces beneath the black sand. Happiness. I’ll be going back.

I’m thinking of doing a video or ebook on how to pan and look for gold in the wild. Would that interest any readers?

Spent time alone, really alone, for hours by a lake. A little meadow had a bench where an old First Nations pit house used to be. Beautiful wildflowers. On the way back down a remote road there were two deer hanging out. Calm as could be. They let me come very close before meandering off.

Back in Vancouver for the weekend, attending a friend’s show at a back alley little venue called Skinny Fat Jacks. Off to the Vancouver art gallery this afternoon for a show with Cezanne, then back into the Gold Rush Trail home again in the morning.